Endodermal differentiation is the process by which cells in the embryo develop into the endoderm layer, one of the three primary germ layers. This layer eventually gives rise to vital organs and structures, including the digestive system, lungs, and liver. During this process, specific signaling pathways and transcription factors guide the cells to adopt endodermal characteristics. These factors ensure that the cells can properly form and function as part of the body's internal systems, playing a crucial role in overall development and health.